The first-quarter earnings Rule Breakers pick Exelixis (NASDAQ:EXEL) issued last week were ultimately overshadowed by exciting news about one of its top compounds.

In news that sent shares up nearly 9% last week, Exelixis announced that its potential non-small-cell lung-cancer treatment, XL647, had achieved "proof-of-concept" in its phase 2 testing. That means that the drug may have exhibited some sort of anticancer activity, since a predetermined number of patients had to have some degree of response to its use.

This news gives Exelixis' development partner for the compound, GlaxoSmithKline (NYSE:GSK), until July or August to decide whether to take over sole development of the drug. If it does grab XL647, Exelixis will get an immediate, hefty (but unrevealed) milestone payment, which I'd estimate between $50 million and $60 million. Additionally, Exelixis will receive royalties on all sales of the drug, and potential U.S. co-marketing rights if the drug makes it to market. Better yet, it won't incur any more expenses associated with the compound's development.

With all the deals it's signing, Exelixis actually increased its cash equivalents and investments by more than $40 million in the quarter, to $305 million, despite running 14 drugs through clinical-stage testing. That's quite impressive for a development-stage drug company without any marketed products, and it contrasts sharply with other drug companies like CV Therapeutics (NASDAQ:CVTX), which can't even manage its burn rate with a single marketed compound.

For 2007, Exelixis expects to burn through cash in the low-to-middle $100 million range. However, that doesn't include any immediate milestone payments received if GSK decides to develop XL647, or if two other compounds successfully reach the proof-of-concept determination point and eventually get chosen by GSK.

Exelixis will present at the American Society of Clinical Oncology medical conference in the beginning of June. Conferences such as ASCO are generally much more important for a development-stage biotech than a quarterly financial-results conference call, because these meetings give investors much more color on the clinical trial results for a company's top compounds. The first half of 2007 has produced a string of unmitigated successes for Exelixis. ASCO will be the first indication whether that trend can continue in the second half of the year.

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Fool contributor Brian Lawler does not own shares of any company mentioned in this article. GlaxoSmithKline is an Income Investor recommendation. CV Therapeutics is a Rule Breakers selection. The Fool has a disclosure policy.